Like it or not, the euro crisis affects the Garden State, too

EPA/BORIS ROESSLER - The direction of New Jersey's economy is partly in the hands of this man, European Central Bank president Mario Draghi.

September 23, 2012 – An ocean separates New Jersey from Europe, but that doesn’t make businesses here immune from the continual shocks of the Old World’s sputtering economy.

Slackened demand for U.S. goods and services and constant gyrations in currency exchange rates has made it tougher for Garden State companies to do business in the European Union, although some also are finding opportunities that might not exist otherwise.

Now in its third year, the EU’s sovereign debt crisis shows no sign of abating. Despite developments such as the European Central Bank’s pledge of unlimited bond-buying to support the euro, a great many shadows are still cast over the region’s common currency and broader economy.

“If it doesn’t unravel, it’s diminished by the knowledge that the devil is in details,” said Patrick O’Keefe, an economist with JH Cohn in Roseland. “In the euro crisis, there is no shortage of devils.”

That ultimately weighs on the minds of Garden State companies doing business across the Atlantic. At a seminar in East Brunswick last week hosted by global payments processor Cambridge Mercantile Group, owners of local importers and exporters bemoaned the amount of time they spend monitoring the latest news out of Europe and the inevitable swings it causes in exchange rates. Even a 1 percent move in exchange rates adds up when dealing with a $200,000 shipment, one importer said.

“It’s hard to plan. You think about what time you should place your order when you wake up in the morning,” said David Moskowitz, a West Orange distributor of medical equipment.

Trade with the EU produces a sizable portion of the Garden State’s economy. New Jersey exported $9.6 billion worth of goods to the 27 countries in the region last year, according to trade data from the U.S. International Trade Administration. That’s about a quarter of all exports from the state, which tallied $38.2 billion last year. Most of these shipments ended up docking in the United Kingdom, which took in $2.6 billion from New Jersey last year, and the Netherlands, which received $2 billion.

Last year’s exports to the EU amounted to 16 percent less than what it had been in 2008, when $11.5 billion goods flowed from the Garden State to the EU. This year, however, appears to be picking up slightly, as New Jersey exported roughly $5.1 billion to the EU during the first 6 months of this year, compared to $4.7 billion over the same period last year.

Chemicals top the list of goods New Jersey sends the EU, with about $2 billion worth exported last year. That’s followed by petroleum and coal product exports, which topped $1.46 billion last year.

The vast majority, or 93 percent, of the 15,512 companies that exported from New Jersey in 2009 were small and medium-sized businesses, or those with fewer than 500 employees. About 3.3 percent of the state’s private sector during 2009 were manufacturing jobs tied to the export business, according to ITA.

Export businesses, however, are less susceptible to the shocks of Europe than the financial sector, said Alexander Heil, chief economist for the Port Authority of New York and New Jersey. Banks and financial firms tend to react much quicker to a plunge in demand for financial services. “A lot may happen there very quickly,” he said.

“Concerns of a banking crisis in Europe has spooked the state’s financial industry. The industry added jobs last year, but started contracting again since the beginning of 2012,” said Sohini Chowdhury, an economist with Moody’s Analytics who follows New Jersey’s economy.

Payrolls in financial services are now at historical lows, she added. “Being high-paying, the loss of these jobs slows down income growth, eventually dragging down consumer spending and tax revenues.”

The region’s economy, however, has become more diverse since exiting the recession, as the major growth has been in the retail, leisure and hospitality and tourism sectors, Heil noted. But the financial sector still accounts for a very large share of the economy, so downsizing in the sector still would be felt more broadly.

Probably the biggest shock would be produced if several countries were to exit Europe’s common currency over the next few years, Heil said. While it’s impossible to predict exactly what would happen under such a scenario, it’s likely that southern New York and northern New Jersey would lose any employment gains they would have otherwise made over the coming years.

For some specialty manufacturers, Europe’s debt crisis has made for unique opportunities.

John Bonforte Sr., founder of Monmouth Rubber & Plastics, whose products get turned into rubber gaskets inside everything from computers to cars, said the euro crisis has helped strengthen his company’s position overseas because it’s helped diminish or drive European competitors out of business.